Four years after exiting bankruptcy, Safety-Kleen Holdco, an oil recycling, parts cleaning and environmental services provider, has returned with a vengeance: It has announced its intent to raise up to $300 million in an initial public offering, according to a filing with the Securities and Exchange Commission.
Record energy prices are boosting the fortunes of Safety-Kleen, which is the most visible renewable energy company planning to go public this year. Renewable Energy Group and Imperial Renewables, two U.S. biodiesel producers, withdrew planned $150 million and $345 million IPOs in March and January, respectively, citing poor market conditions.
Texas-based Safety-Kleen said the cash it raises from the IPO would go working capital and capital expenditures needed to expand capacity of its two oil re-refineries and tank storage by approximately 24 million gallons and 12 million gallons, respectively. The company also plans to pursue strategic asset acquisitions, similar to its purchase in December 2007 of certain oil collection and environmental services assets of Advanced Liquid Recycling, strengthening the company’s market presence in the Northeast. Other noteworthy finding in the SEC documents:
- The company operates the two largest oil re-refineries in North America, representing more than 75 percent of North American re-refining capacity. The company collects more than 200 million gallons of used oil annually, according to the Safety-Kleen website. For the fiscal year-ended December 29, 2007, oil recycling accounted for approximately 38 percent of total sales.
- Safety-Kleen offers parts cleaning services, collecting and recycling used cleaning solvent from automotive and industrial customers. In fiscal 2007, the Company recycled approximately 14 million gallons and the parts cleaning business contributed approximately 29 percent to aggregate revenue.
- Hazardous and non-hazardous wastes are also handled by the company, which has a fleet of 240 vacuum trucks that can remove solids, residual oily water and sludge and other fluids from oil-water separators, sumps and collection tanks. This segment accounted for about 33 percent of total sales.
- Revenues for fiscal year 2007 increased $70.8 million, or 7.1 percent, to $1.07 billion, primarily due to an increase in demand for recycled oil, accompanied by strong pricing.
- Improvements in working capital management (accounts receivables), successful cost-cutting initiatives, and higher oil prices-ongoing improvements in company’s business performance led to Safety-Kleen posting net income of $$4.49 million, or $0.12 a share, compared with a net loss of $(73.37) million in the prior year.
Offsetting indications of ongoing improvement in its business performance, BNET notes that Standard & Poor’s Ratings Services assigned its ‘BB-’ corporate credit rating [non-investment grade] to Safety-Kleen’s issuance in 2006 of $395 million in senior secured credit facility.
“The ratings on Safety-Kleen reflect its aggressive capital structure without the benefit of a track record regarding financial policies, ” said Standard & Poor’s credit analyst Robyn Shapiro. “They also reflect the company’s relatively low profitability, and pricing and volumes that are somewhat vulnerable to industry cycles.”
Pricing and demand elasticity of recyclable oil products, of course, is directly dependent on the price of crude oil. Were oil to decline substantially in price (unlikely), the high fixed cost structure would limit management’s ability to respond quickly, resulting in reduced operating margins. “In the event of a payment default, there is a 50 percent to 80 percent probability of recovery of principal,” said Shapiro.
